Trading threat to green initiatives

The UK’s biggest energy users warned this week that the new system for trading electricity had so far discouraged two key developments aimed at cutting energy bills.

The UK’s biggest energy users warned this week that the new system for trading electricity had so far discouraged two key developments aimed at cutting energy bills – incentives to reduce consumption during peak periods and the building of more on-site combined heat and power plants.

The New Electricity Trading Arrangements (Neta) mean that small generators are tending to be ‘charged’ to sell their surplus power to the grid when theychoose. This arrangement is now threatening to bring the development of the CHP sector – crucial to the government’s green plans – to a halt.

In the week the government gave the go-ahead to three CHP schemes – British Salt’s Middlewich works in Cheshire, St Regis Paper’s Caldicot site, South Wales, and iXGuardian’s Hounslow facility, west London – there were growing doubts that any of the promoters would proceed with the schemes.

Rob Jones, operations director at British Salt, confirmed: ‘We still haven’t made that decision.’

Jeremy Nicholson, economic adviser to the Energy Intensive Users’ Group, said the failure of any large supplier to come up with a successful scheme to purchase the output from a portfolio of smaller generators had made the situation worse, and suggested the financial incentives to do so were insufficient.

‘The big unanswered question is why that vacuum hasn’t been filled. The fact that this market appears to have vanished rather than flourished suggests there’s not enough in it.’

The deteriorating position is expected to add urgency to the DTI’s review of Neta’s impact on smaller generators. This is expected by mid-August.

The EIUG said the other notable deficiency of Neta has been its failure to stimulate so-called ‘demand-side management’, under which energy- intensive sites such as steel would offer to reduce their loads at peak times in return for payments.

This is potentially a more efficient means of meeting daily surges in demand than bringing extra – and inevitably expensive – generating capacity on to the system, but it has yet to happen.

The EIUG also said the promised price cuts from Neta may have all come through ahead of its introduction in March, and there was some evidence that prices were now rising again.

Industry regulator Ofgem’s annual report last week said that Neta had led to a 35% cut in electricity prices during the last two years, with contract prices this year 15% down on 2000 levels. However, a spokesman conceded: ‘They were contracts struck before Neta came into being.’